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Should you buy Flight Centre or Corporate Travel Management Ltd?

With the December quarter sales figures and recent reporting season, we could see how retail sales were holding up, but how about in consumer services like flight and holiday reservation companies? These two companies made attractive gains and improved returns for shareholders, showing that although airline companies may be losing money, servicing the demand for travel bookings can be quite lucrative.

Flight Centre Travel Group Ltd’s (ASX: FLT) share price keeps climbing, making a new 52-week high this week. It’s improving its business on three fronts – increasing corporate travel, implementing its new hyperstore format in Australia and overseas, and growing its UK and US businesses.

Altogether, H1 2014 net profits gained by 20% to $110.8 million. Net profit margin improved to over 10%, and its long-term debt is only $2.36 million, a small fraction of even the half-year profits, so its financials are strong and the company is performing well.

Earnings over the past five years have been growing steadily and uninterrupted by a compound annual 11.4% rate, and during that time total shareholder return was an average annual 63.9%, so it has consistently made its shareholders a great return.

Corporate Travel Management Ltd (ASX: CTD), a travel management services provider that specialises in the higher profit margin business of corporate travel, has recently grown organically and through the acquisition of the US-based TravelCorp business. In the first half of 2014, group revenue was up 15% to $43.3 million, and net profit was $5.6 million, up 11.4% on the pcp.

The North America segment grew the most and a stronger second half is expected from business improvements and general seasonality of business. In addition, it is looking towards more revenue growth from its 75.1% stake in Westminster Travel, which it recently acquired to expand its business into Asia. It will contribute about five months of earnings to the full year 2014 results.

Since listing in 2010, the company’s reported net profit has gone from $3.32 million to $12.3 million in 2013, or about a compound annual 55% growth rate. Net profit margin and return on equity were 14.8% and 16% respectively in 2013, so shareholders are enjoying a steady and profitable business.

Foolish takeaway

Both companies are expanding into the much larger international travel markets. Focusing on growing corporate travel will help keep profit margins up, and extensive business networks bring together the services today’s travelers are looking for. Adding them to your portfolio will give you exposure to this growing market.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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